GEB1101 Chapter 18 - 100%

Issuing stock as a source of funding is referred to as

equity financing.

Short-term forecasts are based on

expected sales revenues and expenses for the coming year.

If your job is to compare actual expenses incurred by your company with financial projections previously created, you are performing the task of

financial control.

One advantage in using retained earnings as a long-term source of funds is

firms avoid having to make dividend payments to stockholders, or interest payments to bondholders.

Commercial finance companies accept more risk than banks, and the interest rates they charge are usually ________ than commercial banks.

higher

Financial controls are designed to help managers to

identify variances from the financial plan and take corrective actions.

Internal audits are important because

internal audits help to make accounting statements more reliable.

Bargain Books, Inc., an eclectic book and music store near a large college campus, is a reseller. The operation buys books almost every day. Deliveries are constantly part of the day-to-day operation of the firm. The transportation company that delivers to Bargain Books provides this service on trade credit terms of 3/5, net 30. This means the firm

is offered a 3% discount if it pays during the first 5 days. The entire bill is due in 30 days.

The time value of money means that

it is better to have money in your pocket now, than later.

Companies must have a carefully constructed inventory policy in order to

manage available funds and maximize profitability.

One of the consequences of the financial crisis that began in 2008 was

more government scrutiny and regulations.

What is the major problem with selling on credit?

A sizeable portion of a firm's assets could be tied up in accounts receivable.

What is a type of short-term financing that consists of unsecured promissory notes that mature in 270 days or less?

Commercial paper

Takisha Jorimoto works in finance for a small microbrewery. This week Takisha is working on a budget for the next 12 months. She has been doing research to determine prices for the new equipment the company will need in the next 12 months to stay competitive in this market. Which of the steps in financial planning is Takisha involved in?

Forecasting short-term financial needs

The financial manager for Eastern Bay Brewery is working with the firm's marketing department to bring out a new line of pumpkin ale. The new product development and subsequent production will require a long-term investment of funds by the company. Which of the following sources of financing would be representative of such a long-term funding requirement?

Issuance of bonds

Mario's Italian Gardens, an authentic Italian restaurant in suburban Chicago, worked with a local bank for a ________. This unsecured source of funds was available for Mario to tap into if he needed immediate funds for the business. He liked the fact that he had a cushion and only used it if he fell short of funds.

Line of credit

Which of the following is a major reason why businesses fail financially?

Undercapitalization

Financial managers examine the financial data prepared by ________ and make recommendations to top executives about strategies for improving the financial strength of a firm.

accountants

Taxes represent

cash outflow.

Idle Time Gaming, Inc., knows that its stockholders expect a return on their investment. The expected return that stockholders anticipate translates into the company's ________. Essentially, this is the amount that the investment funds are costing the firm.

cost of capital